Perceptions of Equity and the Distribution of Income

42 Pages Posted: 7 Aug 2012

See all articles by Julio J. Rotemberg

Julio J. Rotemberg

Harvard University, Business, Government and the International Economy Unit (deceased); National Bureau of Economic Research (NBER) (deceased)

Date Written: June 1996

Abstract

This paper builds a simple model where there is a link between employees' perception of the fairness of employers and the actual distribution of income. Wages are based in part on employers' assessments of the productivity of individual employees. I show that the equilibrium distribution of income depends on the beliefs of employees concerning the accuracy of these evaluations. I give conditions under which the distribution of income across employees of the same vintage is more equal if employees believe that these evaluations are generally inaccurate (so that they are skeptical of capitalists in general) than when they believe that these evaluations are accurate. The model is consistent with the fact that, in a sample of seven countries, the distribution of income is more unequal in countries where people feel that income inequality is not too large.

Suggested Citation

Rotemberg, Julio J., Perceptions of Equity and the Distribution of Income (June 1996). NBER Working Paper No. w5624. Available at SSRN: https://ssrn.com/abstract=3205

Julio J. Rotemberg (Contact Author)

Harvard University, Business, Government and the International Economy Unit (deceased) ( email )

Cambridge, MA
United States
617-495-1015 (Phone)
617-496-5994 (Fax)

National Bureau of Economic Research (NBER) (deceased)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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